After an eighteen month wait, the Government is expected to announce new milestones in its Making Tax Digital initiative in next week’s budget.
Boris Johnson’s Government has a big majority and is thought to want to make a bold statement in the country’s first budget for eighteen months.
MTD for VAT was introduced in April 2019. But amid all the uncertainties of the UK’s departure from Europe, other aspects of MTD were put on the back burner.
Income tax for the self employed
With Brexit out of the way, it is widely expected that the Government will announce a hard deadline for Making Tax Digital for Income Tax.
The industry expects digital record keeping to be made mandatory for the self-employed starting from April 2023.
This will mean a two-year implementation window giving software companies much-needed time to deliver robust income tax MTD-compliant products.
According to HMRC, at present there are only six suppliers of software to handle income tax.
One of the learnings from the introduction of MTD for VAT was around the late development of the software. This made life difficult, as accountants weren’t able to visualise how they would need to work would change, creating confusion and resistance.
MTD for income tax will apply to the self-employed, partnerships and trusts, and anyone who receives income from property. Although if the rollout assumes the same route as previously intended an exemption will apply to those with turnover below a certain threshold, possibly £10,000 total turnover from all sources of self-employment and property income.
An exemption might also apply to larger partnerships with a turnover exceeding £10m.
Corporation Tax consultation
The industry will be looking out for a commitment to begin consultation over MTD for Corporation Tax .
Despite promising to consult on the shape of MTD for Corporation Tax some years ago the Government has yet to issue consultation document.
Consultation could take a number of years, so implementation is even further out. The results are needed to clarify the form that MTD for Corporation Tax will take and enable software companies to start product development.
More work on VAT
MTD for VAT has been mandatory since April, but is now moving out of the ‘soft-launch’ phase. The industry now has to deliver end-to-end dynamic data. For some companies, particularly with complex IT systems, this could mean a new level of challenge in the coming months.
At some point HMRC is likely to revist MTD for VAT and will want to include businesses below the VAT threshold. It is possible to register now on a voluntary basis.
Prior Boris Johnson’s Cabinet reshuffle in February industry pundits felt sure the Budget would include a major announcement over MTD.
However, the replacement of Sajid Javid as Chancellor with Rishi Sunak has increased uncertainty and puts a caveat on predictions.
Rumours circulating since Sunak took over have indicated that the March budget might be more cautious that previously expected. It may be the new Chancellor defers some or all announcements until the Autumn. Or he could be required to mirror the bolder mood of Downing Street and move ahead with change.
Brian Palmer, tax policy adviser for AAT, comments:
“It’s in everyone’s interests to get a clear statement from the Government regarding its intentions for Making Tax Digital. We want to see a long-term roadmap that will make it clear to software developers what to expect so they can prepare products accordingly.”
AAT CEO Mark Farrar has given this assessment of prospects for digitisation:
“I think the focus for the 2020s will be to make all of the big ticket taxes digital by the decade’s end, then mop up the smaller taxes after that.”
Read more on making tax digital
- How income tax will shape the digital landscape
- Tax through the 2020s
- The MTD grace period is over – so what now?
David Nunn is Content Manager at AAT.